You could be one of the many whose pension fund, and subsequent pension annuity, is on the low side, entitling you to make a claim for Pension Credits. Millions of pensioners are potentially missing out on valuable cash benefits to which they are legally entitled, the government and pensioner groups said today. If you do not apply before the 6th October this year you could be missing out on up to one year’s backdated payments. Very important if that pension annuity is not enough.

Pensions minister Mike O’Brien has said many older people still mistakenly believe that owning a house or having some savings automatically disqualified them from eligibility for pension credits. This is not the case. 

Some 2.7million pensioner households receive pension credit at an average of around £50 a week. The government’s stated goal is that no pensioner over the age of 60 should live on less than £124.05 a week. A bold statement, but even that isn’t really sufficient.

Some estimates put the value of unclaimed pension credits at up to £5 billion a year, and that’s an awful lot of money. The government is planning to write to around 250,000 elderly people over the next few weeks to encourage them to claim.

Help the Aged said tackling pensioner poverty was an urgent issue, and ‘claiming benefits which belong in older people’s pockets is crucial to that’. They estimate that around £5 billion worth of benefits are left unclaimed each year and that money could make a huge difference to the living standards of pensioners everywhere, many of whom are really struggling with the soaring cost of basics such as food and fuel. One years back claiming is possible if the claim is lodged on time.

Gordon Lishman, of Age Concern, said millions of pensioners were missing out on up to £5 billion in Pension Credit and other unclaimed benefits. This could make a ‘huge difference to their quality of life’, he said.

People can make these claims to get what is actually due to them. They shouldn’t be ashamed to claim, and we know many are. This money is better off in their back pockets than with the Government. It has been earmarked to help those less well off and should be taken up. They should make a claim now to ensure they don’t lose out on cash that’s rightfully theirs.

It is an interesting question, what happens to your pension annuity, your retirement income, if you die early in retirement, or if you die before reaching retirement. Different pension schemes have different rules on this issue.

Final salary pensions, sometimes called defined benefit schemes, are the top tier of company pension schemes. Sadly, these schemes are not as common these days as they used to be. Few new employees will be offered them these days. If you die before drawing your pension, most schemes will pay up to a maximum two-thirds of the likely pension you would have got if you had worked with the company until retirement. Many will also pay a death-in-service benefit to a maximum of four times your annual salary.

These payments can go to your husband, wife, any dependent children, or nominated beneficiaries. Scheme rules do vary, though.

These days, most employees are now in money-purchase, or defined contribution, pension schemes, and will use their pension pot when they retire to purchase a pension annuity. You might die before getting that far. If so, your scheme should return the value of your fund at time of death, including employer contributions, tax relief and any growth. Some employers may also offer death-in-service benefits as well.

Premature death with stakeholder and personal pensions…once again, you get your money back, or rather your survivors do, in the form of a lump sum known as “return of fund”. This will include all your contributions, tax relief and any growth. The same goes for members of group personal pensions.

With state pensions, if you’re single, your state pension dies with you. If you are married, and your partner is over 45, they may be able to claim a £2,000 refund lump sum, then the full basic state pension for up to 52 weeks, currently £90.70 a week.

If you’re simply cohabiting, your partner won’t get a penny. This spells disaster for couples who have lived together for years, only for the main breadwinner to die young.

There are some things you should consider doing, regardless of the type of pension scheme you have. When you take out a scheme, you should make an expression of wish, setting out your beneficiaries.

You should also consider writing your plan into trust, setting out exactly who you want to get the money. If you don’t, any payout could end up being decided by probate, which, as we all know, could take months. You should also write a will (and keep it updated), to make sure your wishes are clear and legally enforceable.

The best thing you can do if in doubt is to seek professional advice. Premature death, whether before drawing your pension annuity or after, is a major financial issue. Maybe not for you, but for your dear ones you leave behind.

There are some new figures from the Government revealing just how much Britons need to save to avoid retiring on means-tested state benefits…and it makes for a daunting read. The Department for Work and Pensions (DWP) admits that low earners will see their retirement income increase by only 1 per cent of their salary, or £2 a week, after 10 years’ saving in the Government’s flagship new pension scheme to be launched in 2012. This as a result of means testing pension income. Not a particularly good return!

These figures highlight the way Pension Credit, the means-tested benefit paid to pensioners with small pensions, reduces the incentive for many people to save. Indeed, some research suggests that the average UK saver needs to build up a pension pot of £43,789 to avoid retiring on benefits at age 65. This pension pot then being used to buy a pension annuity for the individual’s retirement income. Interestingly, the average pension pot in the UK today is below this figure, nearer £35,000.

Some say this is a hangover of offering Pension Credit to today’s pensioners, which has helped millions of elderly people, but has also had an effect on the incentive for many to save.

Many people will fall on benefits as they get older because while basic state pension rises each year in line with prices, and most pension annuities have no inflation protection at all, the threshold for benefits goes up in line with wage inflation, which increases at a higher rate.

Non-means tested state pension comes in two parts. Basic state pension, currently £90.70, and state second pension, which varies in amount depending on earnings over your working life. The average combined basic and state second pension is currently £134 a week.

To understand how the means-testing system will affect your pension saving, you need to know how much state pension you are likely to get. You can do this by contacting the Pensions Service by telephone or by visiting their website in the first instance.

Here’s a statement that’s hardly a surprise. The recent fall in property prices is not good news for those who are relying on property for their pension income in retirement.  Roughly 18% of all outstanding buy to let debt was taken out in 2007 when property prices peaked and some of these investors could now be in negative equity. They probably thought it was a good idea at the time and a better option looking ahead than a pension annuity.

Some who have been in the market for years will be fine as they will have large capital gains to cushion any downturn in prices - provided their portfolio is not over geared and they can afford rising mortgage interest payments.  Interestingly, though, one third of all landlords own just one buy to let property and if they bought recently, they could be seeing a loss on their investment. One really isn’t a good long term idea…too much reliance on one property.

For the overwhelming majority of the population, buy-to-let should not be seen as an alternative to making regular savings into a pension. 

Investors’ losses are on paper until they sell their assets and provided landlords have good tenants who pay the rent and it is sufficient to cover mortgage interest payments, the actual value of the property doesn’t matter in the short term. But the chief worry is that they may be forced to sell up because interest payments become unaffordable. 

The risks of using a buy-to-let investment as a way to save for retirement have always been there. Over the long term a buy-to-let investment should still return a healthy profit, and those who have injected a substantial amount of equity into the property should be positioned to ride out a downturn.

Mind you it’s fair to say that equity investors have suffered recently, as well as property investors. The FTSE 100 has fallen 19% from its June 2007 peak. Pension investors would therefore have lost 19% of the value of their UK equity portfolio if they had invested at the top of the market.

It is an interesting issue, and probably the best course of action, if possible, is to build up a large pension pot to be able to buy a healthy pension annuity income at retirement, but also have other means of income, such as buy to let, to top up the retirement income.

Life Trust have been working on producing a report that puts a figure on the cost of retirement. This has been done in conjunction with the Centre for Economic and Business Research, and makes interesting reading…though quite daunting. The report finding suggests that retirees need £413,000 on average to fund a retirement lasting from 65 to the average life expectancy. That’s enough for a very large pension annuity.

From the report: those in the top 20% for earnings could expect to spend £1.55m on their retirement should they live to 100. Spending on transport, recreation and culture, hotels and restaurants, and alcohol and tobacco accounts for 44% at age 65. This then falls to 26% at age 85 and 18% at age 95. The older individual does tend to spend more than others on certain things, but as they are able to do less, they spend less.

Professor Sarah Harper, Director of the Oxford Institute of Ageing, has been quoted on several occasions as saying that soon “90 will be the new 70”. But many people don’t have the disposable income to accompany their physical well-being and living longer.

As we get older, more and more of our budget is eaten up by the basic costs of living. The amount spent on fuel, housing and power increases nearly four fold during retirement going from £34 per week at age 65 to £116 at 92. Those retiring today, born and raised in the long shadow of the second world war, amidst rationing and economic deprivation, may well know a thing or two about sacrifice. 

We should be trying to ensure that people in the decumulation phase are amply provided for the whole duration, but the increase in products such as equity release in recent years reveals that it is not rare for people to run short of income. It is vitally important that we in financial services offer today’s retirees products, services and advice that can save them from foregoing indulgences in their later retirement, in the same way they did at the outset of their lives.